Checking in on balance sheets — This week in the grain market


Grain markets continue to shift lower as harvest pressures – namely better-than-expected yields. A stronger Canadian Loonie put pressure on cash prices on the northern side whereas the weaker U.S. dollar has helped offset harvest pressures a bit.

For the week, corn lost 0.55% while soybeans gained 0.7%. Canola was just 0.2% lower while oats and Chicago soft red winter wheat were up 1.7% and 2.4% respectively. While Kansas City hard red winter wheat also gained 1% for the week, hard red spring wheat lost 4.3% since last Friday.

This past week the USDA came out with their monthly world agricultural supply and demand estimates. Most of the market was expecting yield and production downgrades in the U.S. but the USDA was more bearish and raised numbers. Specifically, for U.S. corn, the market was expecting 168.2 bushels per acre, but the USDA said they are expecting 169.9. For U.S. soybeans, the market was expecting 48.8 bushels per acre but the USDA challenged that as well, lifting their estimate to 49.9 bushels per acre. These are the 3rd- and 2nd-largest yields respectively in the U.S.

With these sort of bearish numbers, the market immediately dropped before rebounding a bit over the subsequent days. My guess is that the market continues to not believe this, hence the recoil. Most are expecting the USDA to revise yields lower in the October or January WASDE reports.

For corn, the higher corn yield puts total production at 14.18 billion bushels. From a carryout perspective, it suggests that there will still be 2.34 billion bushels of corn available by the end of the 2017/18 season. The market was expecting 2.18 billion bushels.  On the demand side, corn going into feed was raised by 25 million bushels. However, this was offset by a 75 million bushel reduction in food, seed, & industrial use, including 25 million bushels less going into ethanol. US corn exports in 2017/18 were unchanged at 47 million tonnes.

Internationally, Argentina’s crop was raised by 2 million to 42 million tonnes. The USDA is trying to factor in more corn getting planted in the South American nation this year, but the country is facing some excess moisture issues. According to farm group Carbap, 28% of Argentina’s largest-producing province, Buenos Aires, is dealing with above-average moisture. This equates to almost 12 million acres.

In Brazil, 2016/17 corn exports were raised but 2017/18 production remains forecasted at 95 million tonnes with exports of 36 million tonnes. World number four exporter, Ukraine, saw its exports get raised by 500,000 MT to 22 million tonnes as the USDA exports more supply filling EU needs after their crop was lowered by 600,000 MT to 59.4 million tonnes.

This week we got news that China is planning to increase its ethanol production, with a focus for things starting up in 2020. Can it push prices higher? Or will it just be a way for China to clear out its older stocks? Ultimately, I think we need to remember three things:

  • China is the number two producer of corn in the world. When there’s a demand factor there, they’ll grow lots of corn.
  • This program isn’t set until 2020, so there are about 2.5 years there before China even thinks about importing.
  • The full gauntlet of corn-for-ethanol needs won’t hit 100% the first year the program is in place. It’ll take a few years.

On the soybean side, Brazil and Argentina continue to compete well with American sales. New crop sales on this side of the equator continues to sag as South American old crop sales are extending into early autumn.

Accordingly the USDA raised Brazil’s soybeans exports to 62.5 million tonnes for 2016/17 and 64 million tonnes for 2017/18. Also, worth noting is that the USDA has estimated Brazil’s 2017/18 production at 107 million tonnes. Biggest buyer, China, should import 95 million tonnes according to the USDA. This is up 1 million tonnes from the August WASDE.

For America, the USDA raised U.S. soybeans exports for the 2016/17 crop year to 59.1 million tonnes, up 545,000 MT from the previous estimate. For the 2017/18 crop year, the USDA raised the American soybeans exports forecast by 680,000 MT to a new record of 61.2 million tonnes. With the higher yields, this puts total US soybean production at 4.43 billion bushels. That beats last year record output in America. From a carryout standpoint, because of the higher 2016/17 exports, the 2017/18 year starts with 25 million less bushels.

However, the bigger production number kept US carryout for the 2017/18 year at 475 million bushels. The market was expecting 442 million bushels. Combining back to yields, it’s worth noting that while average pod counts are lower, the USDA is suggesting that the weights of the pods are the heaviest ever. And by a longshot. Seems like the USDA is really working the excel spreadsheet to make the numbers dance.

On the canola front, the USDA raised the 2016/17 Canadian crop to 19.6 million tonnes but lowered their number for the 2017/18 crop to 19.9 million tonnes. This latter number is still literally 1.7 million tonnes above StatsCan estimates. Perhaps the USDA is just accounting for the fact that StatsCan has an abysmal record of revising their canola production numbers higher? Regardless, 2017/18 Canadian canola carryout is pegged at 1.1 million tonnes.

Is there a chance this number goes below 1 million this year? I think it can but it won’t be done until this time a year from now when the market is already looking to the 2018/19 crop.

On wheat, the USDA raised U.S. spring wheat by 15 million bushels on less exports and domestic use. Total 2017/18 carryout for US hard red spring wheat is now pegged at 146 million bushels (or slightly less than 4 million tonnes if you’re using For durum, US ending stocks for 2017/18 were also raised by 2 million bushels to a total of 24 million bushels (or 653,000 MT). The reason for the increase was imports were raised. The only logical place those imports are coming from is Canada. If you’re planning to take advantage of it, again I recommend you get your wheat tested for U.S. grades as well.

Speaking of Canadian wheat, the USDA kept their total production estimate at 26.5 million tonnes, which is about 1 million tonnes above most of the private market and StatsCan’s recent estimate from August 31st. The USDA did drop Australian production by 1 million to 22.5 million tonnes, but that’s still high compared to ABARES and other private estimates.

However, the USDA also increased Russian wheat production by 3.5 million tonnes to 81 million, in line with most other forecasts. This puts total global wheat production for 2017/18 at nearly 745 million tonnes. It also keeps global carryout at a record 263 million tonnes (technically this number was lowered by 1.5 million tonnes so that’s working for us).

Overall, sure there’s a lot of wheat out there in the world but not necessarily a bunch of the highest quality. We think that there are some better opportunities to price out wheat down the road, but this will include protein and other quality premiums. We continue to recommend that farmers order their independent grain tests from As such, while posted prices may not be great, we expect them to improve, especially when you start to consider quality premiums.

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